Posted by AzBlueMeanie:
I posted about the proposal to "do nothing" and let the Bush tax cuts expire earlier this year to produce the $4 trillion "grand bargain" that the White House and Tea-Publican leaders failed to agree upon before nearly defaulting on the U.S. debt this summer.
Now the proposal to "do nothing" is back in currency with respect to the looming failure of the so-called "Super Congress" next week. To "do nothing" would produce a more favorable result than anything this "Super Congress" is ever likely to agree upon. Steve Benen writes at the Political Animal - Don’t just do something, sit there:
David Leonhardt put it this way in April: “A trick question: If Congress takes no action in coming years, what will happen to the budget deficit? It will shrink — and shrink a lot.” Annie Lowrey added, “[D]oing nothing allows all kinds of fiscal changes that politicians generally abhor to take effect automatically.”
It may seem unsatisfying, but if policymakers simply leave the status quo in place, and let nature take its course, taxes will return to Clinton-era rates, the Affordable Care Act will save us a lot of money, and the deficit will shrink considerably. There would still be long-term concerns related to entitlements, but for quite a while, Congress wouldn’t have to do anything — no committees, no legislation, no filibusters, no negotiations — except allow time to elapse.
E.J. Dionne Jr. moves the ball forward today, noting the combination of automatic tax increases (the return to Clinton-era rates) and automatic spending cuts (the “triggers” that get pulled when the super-committee fails) produces “a surefire way to cut $7.1 trillion from the deficit over the next decade.”
The prospect of $7.1 trillion in tax increases and some cuts that would begin taking effect in January 2013 … should hearten every deficit foe now prepared to mourn a failure by the supercommittee.
Because the bulk of the $7.1 trillion comes from automatic revenue increases, the power in future negotiations would shift toward those seeking a balance between cuts and taxes. Doing nothing is not an option when it comes to job creation. Congress still needs to act. But on the deficit, inaction now could lead to wiser action later. […]
A balanced deal would be nice but it’s now impossible — and not because of some vague congressional “dysfunction” the media like to talk about. Sane fiscal policies are blocked because one party refuses to accept the need to roll back the excesses of the 2001 and 2003 tax cuts. If Congress does nothing, those tax cuts go away. That’s why a “failure” by the supercommittee to endorse a deeply flawed deal is actually a victory for sensible deficit reduction.
I’d just add one key detail: GOP officials won’t like this, but it was their idea. It was Republicans who included a sunset clause on their irresponsible tax cuts, setting them on course to expire. It was also Republicans who demanded the spending cuts in the “trigger” over the summer.
In other words, GOP policymakers will scream bloody murder if the lower tax rates expire and Congress is required to cut $1.2 trillion, half of it from the Pentagon budget. But these are the precise consequences that Republicans themselves invited with their own policies.
Ezra Klein's Wonk Blog adds The do-nothing plan: now worth $7.1 trillion - The Washington Post:
In the past, I’ve talked about the “do-nothing plan” for deficit reduction: Congress heads home to spend more time with their campaign contributors, and the Bush tax cuts automatically expire, the 1997 Balanced Budget Act’s scheduled Medicare cuts kick in, the Affordable Care Act is implemented, and the budget moves roughly into balance. It’s not an ideal way to balance the budget, but it helps clarify that the deficit is the result of votes Congress expects to cast over the next few years. If, instead of casting those votes, they do nothing, or pay for the things they choose to do, the deficit mostly disappears.
The last few years have added new elements to the do-nothing plan: the trigger, for instance, and various temporary tax cuts Congress has been extending. James Horney of the Center on Budget and Policy Priorities ran the numbers for my colleague E. J. Dionne, and he says the do-nothing plan would now lead to $7.1 trillion in deficit reduction — more than even the Fiscal Commission envisioned. Here’s how it breaks down:
— $3.3 trillion from letting temporary income and estate tax cuts enacted in 2001, 2003, 2009, and 2010 expire on schedule at the end of 2012 (presuming Congress also lets relief from the Alternative Minimum Tax expire, as noted below);
— $0.8 trillion from allowing other temporary tax cuts (the “extenders” that Congress has regularly extended on a “temporary” basis) expire on schedule;
— $0.3 trillion from letting cuts in Medicare physician reimbursements scheduled under current law (required under the Medicare Sustainable Growth Rate formula enacted in 1997, but which have been postponed since 2003) take effect;
— $0.7 trillion from letting the temporary increase in the exemption amount under the Alternative Minimum Tax expire, thereby returning the exemption to the level in effect in 2001;
— $1.2 trillion from letting the sequestration of spending required if the Joint Committee does not produce $1.2 trillion in deficit reduction take effect; and
— $0.9 trillion in lower interest payments on the debt as a result of the deficit reduction achieved from not extending these current policies.
Put another way, all we need to do to solve our deficit problem is to "do nothing."
UPDATE: Paul Krugman adds his two cents today in Failure Is Good - NYTimes.com:
It’s a bird! It’s a plane! It’s a complete turkey! It’s the supercommittee!
* * *
In this case, failure is good.
Why was the supercommittee doomed to fail? Mainly because the gulf between our two major political parties is so wide. Republicans and Democrats don’t just have different priorities; they live in different intellectual and moral universes.
* * *
If and when the supercommittee fails, virtually all news reports will be he-said, she-said, quoting Democrats who blame Republicans and vice versa without ever explaining the truth.
Oh, and let me give a special shout-out to “centrist” pundits who won’t admit that President Obama has already given them what they want. The dialogue seems to go like this. Pundit: “Why won’t the president come out for a mix of spending cuts and tax hikes?” Mr. Obama: “I support a mix of spending cuts and tax hikes.” Pundit: “Why won’t the president come out for a mix of spending cuts and tax hikes?”
You see, admitting that one side is willing to make concessions, while the other isn’t, would tarnish one’s centrist credentials. And the result is that the G.O.P. pays no price for refusing to give an inch.
So the supercommittee will fail — and that’s good.
For one thing, history tells us that the Republican Party would renege on its side of any deal as soon as it got the chance. Remember, the U.S. fiscal outlook was pretty good in 2000, but, as soon as Republicans gained control of the White House, they squandered the surplus on tax cuts and unfunded wars. So any deal reached now would, in practice, be nothing more than a deal to slash Social Security and Medicare, with no lasting improvement in the deficit.
Also, any deal reached now would almost surely end up worsening the economic slump. Slashing spending while the economy is depressed destroys jobs, and it’s probably even counterproductive in terms of deficit reduction, since it leads to lower revenue both now and in the future. And current projections, like those of the Federal Reserve, suggest that the economy will remain depressed at least through 2014. Better to have no deal than a deal that imposes spending cuts in the next few years.
* * *
Eventually, one side or the other of that divide will get the kind of popular mandate it needs to resolve our long-run budget issues. Until then, attempts to strike a Grand Bargain are fundamentally destructive. If the supercommittee fails, as expected, it will be time to celebrate.